One area that seems to bewilder clients more than any other is Aged Care. Often this is a decision that is rushed as a result of a sudden deterioration of health. Rushing these decisions often leads to a poor outcome for everyone involved. It pays to start the planning for aged care early and it pays to get the right advice. It is important to understand the fees and charges and how they can be reduced - at the end of this article is a case study comparing outcomes for an individual.
1. Aged Care Assessment Teams (ACATs)
Prior to entering an aged care facility, a persons physical and mental health must be assessed by a member of an Aged Care Assessment Team (ACAT) to determine the level of care required (nursing home or hostel). A person cannot enter a facility without a referral from an ACAT member.
The best way to contact an ACAT is through a family doctor, local hospital or community health care.
2. Hostels and nursing homes
Hostel (or low level) care facilities provide personal care accommodation and some level of nursing care.
Nursing Homes (high level) care facilities provide 24 hour nursing care and accommodation.
The fees and charges associated with hostels and nursing homes also differ slightly and can be quite costly. Here is a summary:
Cost of care in hostels
a. Basic Daily fee – The basic daily fee is paid by all residents as a contribution towards the costs of daily living such as meals, cleaning, laundry and heating.
The general rule is that the basic daily fee is 84% of the basic single Age Pension. This is currently $40.25. This means that all self funded retirees and some part pensioners pay a lower basic daily fee amount.
b. Income Tested Fee – residents may be asked to pay an income tested fee in addition to the basic daily fee. The amount they pay depends on their income and the level of care they need. The fee is paid directly to the aged care provider as part of their overall fees.
All income received by the resident counts in calculating the income tested fee. The formula for calculating the income tested fee is:
(Total assessable income – Total assessable income free area) x 5/12
Where:
“total assessable income" includes
* Income calculated by Centrelink for the income test
* Pension income
Total assessable income free area is generally $847.90 for singles and $1,659.80 for couples, per fortnight.
The maximum income tested fee is $64.69 per day.
It is important to note that there are strategies that can be implemented to reduce the income tested fee. This involves using investments that are treated favourably under the income test such as annuities with term of greater than 5 years and no Residual Capital Value.
Accommodation bonds
This is an amount that a person entering a hostel may be asked to pay as a charge for accommodation. Each bond is negotiated individually taking into account the person’s assets at the time of entry. Note: there is no limit on the amount of the bond but the individual must be left with $39,000 in assets after paying the bond. A person’s assets are generally assessed in the same way as for Centrelink and DVA pensions.
TIP: It is not compulsory to have an asset assessment unless a person wants to find out if they are eligible for Government assistance with their accommodation costs. Some clients may feel they can negotiate a lower bond amount if the facility is not aware of their total assets.
Payment options
The bond may be paid as-
- lump sum
- periodic payments
- a combination of lump sum and periodic payments
The lump sum bond is held by the facility throughout the time the individual is a resident and they may deduct up to a maximum of $3,816 per annum for up to 5 years.
If the periodic payment option is chosen, the facility will charge interest based on the fact that they are not able to earn interest on the lump sum amount. The Department of Health and Ageing sets the percentage interest that a facility can charge; this is currently 9%.
Note the bond balance is exempt from Centrelink and DVA Assets Test and is not subject to deeming.
Residents who pay at least part of their bond via periodic payment are able to rent out their home and their home can remain exempt from the Assets test. In addition the rental income will not count towards the income test.
Cost of care in a nursing home
Daily Care fees – calculated in the same way as for hostels (above)
Accommodation Charge – Nursing homes generally charge an accommodation charge as opposed to a bond, to cover the cost of accommodation. Like the bond each charge is negotiated individually and the person must have assets of more than $39,000 in order to pay the charge.This means that someone with assets below this amount is not subject to the charge.
The current maximum rate of $32.38 per day applies. The accommodation charge is set upon entry into the nursing home and will not change as a result of a change in a residents level of assets
The number one question that we get asked is ‘What happens to the primary residence when a person enters an aged car facility?’
If both spouses enter a facility or the resident is a single pensioner, Centrelink will continue to treat the home as the principal place of residence for two years from the date the last spouse leaves the home. This means that all residents that keep their family home have at least a two year exemption from the Assets test.
This period may be increased for residents who meet the following criteria:
i. Residents entering a nursing home who are paying or accruing a liability to pay an accommodation charge and renting their former home.
ii. Residents entering a hostel who pay some or all of their bond by periodical payments and are renting their former home.
TIP: Clients can pay the majority of the bond by lump sum where it is exempt from the Assets Test and pay the remaining amount via periodic payments. So long as they are renting out the home, it will also remain exempt.
TRAP: If a person moves into a hostel and pays the accommodation bond in full the rental income will count towards the income test and the home will count as an asset two years after the last member of the couple moves into an aged care facility.
While the home is exempt the resident is subject to ‘homeowner’ Asset Test thresholds. This provides a great benefit for residents on Centrelink. The option of keeping the family home should always be explored first!
CASE STUDY – HOSTEL FACILITY (LOW LEVEL CARE)
* Mavis is an elderly widow (aged 80) who has been assessed into low level hostel care
* Mavis is currently in her home worth $350,000
* Mavis has the following assets apart from her home:
- Contents $5,000
- Investments $250,000
* Mavis receives a UK pension of $5,000 per annum
* Mavis receives a Centrelink pension of $13,121 per annum
The Hostel has asked for an accommodation bond of $200,000
Should she keep or sell the family home?
Should she pay the bond in a lump sum, periodic payment or a combination of both?
Option 1 – Keep and rent out the home, pay the bond as a lump sum from her investments
If Mavis keeps the home it will remain exempt from the Assets test for two years. The rental income will count towards the Income Test and the income tested fee as she is not paying any of the bond as a periodic payment.
Result:
Age Pension entitlement $12,955 per annum
Basic daily care fee $13,990 per annum ($38.33 per day)
Income tested Fee $3,082 per annum ($8.44 per day)
Total Fees $17,072 per annum
Option 2 – Keep and rent out the house, pay $190,000 of the bond as a lump sum and $10,000 periodically
This option takes advantage of having both the bond and the house exempt from the Assets and Income Tests. Even though only part of the bond is paid via periodic payments, this is enough to provide an indefinite exemption on her former home so long as it is rented.
Result:
Age Pension entitlement $17,396 per annum
Basic daily care fee $14,691 per annum ($40.25 per day)
Income tested Fee $652 per annum ($1.79 per day)
Periodic Payments $900 per annum ($2.47 per day)
Total Fees $16,243 per annum
Option 3 – Sell the home and pay $200,000 bond from the proceeds
The proceeds from the sale of the house minus the bond amount of $200,000 count as an asset and is deemed under the income test. Although Mavis is now counted as a non-homeowner her pension is reduced significantly under the income test.
Result:
Age Pension entitlement $9,746 per annum
Basic daily care fee $13,990 per annum ($38.33 per day)
Income tested Fee $4,420 per annum ($12.11 per day)
Total Fees $18,410 per annum
SUMMARY
Clearly, option 2 is the preferred option in this case as Mavis maximises her age pension, reduces her fees and maintains her house. Note that each client has a different set of goals and objectives and the right solution will vary accordingly. It is important to seek advice to ensure you take the right decision before entering aged care facilities.
Information contained in this blog is of general nature only. It does not constitute financial or taxation advice. The information does not take into account your objectives, needs and circumstances. We recommend that you always obtain professional insurance, investment and taxation advice specific to your objectives, needs and financial situation before making any investment decisions or acting on any information contained in this article or on this blog.
HKS Financial Planning as an Authorised Representative of Guardianfp Ltd trading as Guardian Financial Planning. ABN 40 003 677 334 AFSL 237641. Guardian Financial Planning is a part of the Suncorp Group.
